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March 15, 1996

eCONOMIC
COMMeNTORY
Federal Reserve Bank of Cleveland

State E01ploy01ent 1995:
Slowing to a Recession?
by Mark E. Schweitzer and Kristin M. Roberts

Employment in 1995 began with a
bang and ended with a whimper, inspiring
some to prognosticate a recession. A February 1996 spurt in employment growth
(with 631 ,000 new jobs added, the highest monthly gain since 1983) has silenced
many of the bears. The sudden boom
came largely from new job starts that
were delayed by bad weather or, possibly,
missed when the government shutdown
forced survey dates to be rescheduled.
More subtly, the rebenchmarked state
employment numbers have cast a rosier
light on 1995.
Recessions and state-level employment
declines are, in the simplest terms, almost tautologically related: National recessions necessarily affect many states.
However, both the severity and the timing of recessions vary substantially at the
state level. In fact, our review showed
that a number of states were already
exhibiting signs of economic weakness
before the official start of every recent
recession, as dated by the National
Bureau of Economic Research (NBER). 1

ISSN 0428- 1276

In this Economic Commentary, we
review the final 1995 state employment
figures, with an eye toward appraising
the health of the national economy. We
do not investigate the interesting question of the effectiveness of state employment changes as turning-point predictors, which would require a detailed
statistical analysis. Instead, we treat the
states as indicators of the extent of slowing employment gains. Why look at state
figures if our interests are national ?

First, the annual rebenchmarking, which
can dramatically change the history of
both national and state employment figures, is completed at the state level
months before the revised national numbers are released. Second, the timing and
breadth of employment weakness at the
state level help analysts evaluate the national economy's health. Finally, without
regard to a national recession, there can
be substantial regional differences in the
strength of the local economy, which
probably influences public opinion on
the strength of the national economy.

• Rebenchmarked State
Data and U.S. Employment
After the first quarter of 1995, civilian
nonfarm employment gains slowed dramatically (see figure 1). On a year-overyear basis, net jobs growth dropped from
more than 3.1 percent in February 1995
to just 1.5 percent in December. 2 The
size and rate of this decline are considerable, and parallel the declines in 1985
and 1989, prior to the "bumpy landing"
of the mid-eighties and the recession that
began in 1990. However, the national
numbers reveal little about changes in
the underlying employment patterns that
might help us interpret last year 's slowdown in employment growth.
Before we can compare state employment patterns to national changes, we
have to deal with one technical issuethe Bureau of Labor Statistics' (BLS)
annual rebenchmarking process. Its
purpose is to compensate for the failure
of the BLS survey, which covers approximately 400,000 establishments, to

-

l s there any indication of a recession?
The answer is clearly no.
-Joseph Stiglitz, Chairman,
President's Council of Economic Advisors.
USA Today, February S, 1996.

Federal Reserve Chairman Alan
Greenspan said the economy had
entered "a significant soft patch" but
the chances of avoiding a recession are
still "better than 50-50. "
-The Wall Street Journal,
February 22, 1996.

include all employers and therefore all
workers. 3 The key missing component is
jobs created by newly formed companies
or facilities, which are not initially
included in the survey, but rather are estimated by state-specific adjustment factors. In recent years, the rebenchmarking
process has yielded changes ranging
from small reductions to.additions of
over half a million workers (about 0.5
percent of total employment). A particularly large addition might alter the series
enough to change perceptions about the
severity of the recent slowdown.
While we have only a preliminary estimate of the rebenchmarked national figure, the states ' rebenchmarked numbers,
released in March, altered some employment levels substantially. For example,
Ohio's 1995 percentage employment
gain nearly doubled, adding 61,300 jobs,
or 1.2 percent of the state's December
employment. Overall, the updated figures are positive, with the median state

gaining 0.3 percent of its employment
through December 1995. According to
the preliminary BLS estimate, the
national benchmark revisions will add
542,000 jobs. For comparison with state
data, we provide a national employment
trend that applies the sum of the state
rebenchrnarks to the national data (indicated in figure l by the blue line). 4 It
appears that the upcoming national
rebenchrnarking will raise the original
employment growth rates without affecting the 1995 slowdown in job gains.

-

U.S. NET EMPLOYMENT GROWTH

FIGURE 1
Percent change, year over year'

5 ~~..::..;.;:..___..;:.._~~~~~~~~~~~~....-~~~~~~~~-.

a. Not seasonally adjusted.
NOTE: Shaded areas indicate recessions.

• Identifying Weakness
at the State Level
One way to identify states with weak
employment gains is to compare their
year-over-year changes with their average growth over the last 15 years. The
LS-year average accounts for differences
in state growth rates that are associated
with long-run trends or state-specific
features-for example, population
movement toward the Sunbelt states.
Our working definition of "slow"
employment growth is year-over-year
percentage gains that are less than half
of a state's 15-year average growth rate. 5
Figure 2 shows the states that experienced weak employment growth in 1995
and the months when these states were
weak. Nine states had slow (or negative)
employment growth sometime in 1995,
compared to 17 states prior to rebenchmarking. All of these states, except
Alaska and Hawaii, fell below this cutoff
only in the second half of the year, when
national employment changes had
slowed dramatically.
While this cutoff for what defines slow
growth is somewhat arbitrary, it has typically been reached before states experienced a period of employment losses in
the 1980s and 90s or by states that continue to grow at a diminished rate during
a recession. 6 Figures 3 and 4 show the
same cutoff during two recent periods of
slow or negative national jobs growth:
the mid-eighties' "bumpy landing" and
the 1990-91 recession. These figures
illustrate the periods in which states (not
individually identified) fell below the
growth cutoffs on a year-over-year basis,
with the NBER recession dates indicated
by vertical lines. Both figures support
the idea that growth of less than half of a
state's 15-year average is a reasonable

Wyoming
Mississippi
Maryland
P
ennsylvania
Connecticut
N York
ew
W Alaska
ashington
Hawaii

D

- -

TIMING OF SLOW AND NEGATIVE
EMPLOYMENT GROWTH IN THE STATES, 1995

FIGURE2

Slowgrowth
N gative growth
e

~~~;::;::::.

Jan.

.:;::::i5555~:J

...........

F b.
e

M
arch

April

May

June

July

Aug.

S pt
e

SOURCE: Authors' calculations based on data from the Bureau of Labor Statistics.

indicator of continuing problems at the
state level, rather than of randomly
occurring weak periods. Furthermore,
the "first-in-last-out" pattern of employment weakness applies to both of these
periods: The first states to weaken tend
to be the last to recover.7
During the 1990-91 downturn, a substantial number of states were already affected by the time the national recession
began in July 1990 (see figure 3), as was
typical of previous recessions. It is not
surprising that a collection of states
would be more sensitive to an employment shock of national scope (for example, a rapidly weakening industry) or
would have experienced negative shocks
during the period of feeble employment
growth preceding a national recession. In
1990-91, the first states to slow were
concentrated in the Northeast and were
closely tied to defense-industry rollbacks
and general weakness in financial services. Another look at figure 2 reveals that
the current employment slowdown has
neither involved as many states nor affected them for protracted periods. Since
1951, the only recession when so few
states showed early weakness was that of

1973-75, but the typical pattern involves
softening in a number of states before the
business cycle peak.
It is also clear that several states can
experience adverse employment situations without the nation in aggregate
falling into a recession. As figure 4
shows, in the mid-eighties up to 16
states simultaneously had slow employment growth, without the nation experiencing a recession. Until now, the current employment slowdown has affected
far fewer states.

•
Regional Patterns of
Strength and Weakness
Although few states currently show weak
employment growth, regional patterns
are emerging. Figure 5 maps employment changes, again relative to each
state's 15-year history. The categories
were chosen according to average employment growth relative to the 15-year
average of all states (125 percent), with
the outer categories representing substantially superior or weaker performance in
1995. Each category includes 9 to 14
states, with the weakest category being
the smallest. While some states stand out

FIGURE 3

TIMING OF SLOW AND NEGATIVE EMPLOYMENT
GROWTH IN THE STATES, 1990-1992

NBER peak
[] Slow growth
•

N
egative growth

J FMAMJ J ASONDJ
1990

FIGURE 4

FMAMJJ AS ON DJ
1991

F MAMJJ ASOND
1992

TIMING OF SLOW AND NEGATIVE EMPLOYMENT
GROWTH IN THE STATES, 1985-1987

[j Slow growth

ii Negative growth

J FMAMJJ ASONDJ
1985

FIGURE 5

FMAMJJ AS ON DJ FM A M J J ASOND
1986
1987

STATE EMPLOYMENT GROWTH, DECEMBER 19953

More than 175%
D 125% to 175%
D 75% to 124%

Ill Less than 75%

a. Percent of t5-year average employment growth.
SOURCE: Authors ' calculations based on data from the Bureau of Labor Statistics.

from the regional patterns (for example,
Washington, Wisconsin, Hawaii, and
Massachusetts), we want to emphasize
the broad regional trends.
The most conspicuously weak region is
the Atlantic Coast from Virginia to Connecticut. For the majority of these states,
jobs growth fell below the 15-year average only late in 1995. The unusually
harsh winter was not responsible, as the
December survey data were tallied before the severest storms hit. Indeed, employment gains in these states had been
sliding lower for months. Some Atlantic

Coast states were among the last to recover from the 1990-91 recession: New
York, New Jersey, Connecticut, and
Maryland were weak well into 1993,
while Pennsylvania was sluggish until
late 1992. This suggests that some
sources of weakness that led to long
recessions for these states (hobbled defense-related and financial services industries) may still be hindering their
economies.
Near Washington, D.C., with its dwindling federal employment, Maryland and
Virginia have fallen far short of their typ-

ical growth rates since May 1995. While
U.S. government jobs represent a large
share of these states' total employment
(around 6 percent in Maryland versus
about 2 percent nationally), the direct
decline of federal employment (-1.6
percent last year for Maryland) does not
account for such weakness. Rather,
potentially associated losses and slowdowns across most industries explain
Maryland's poor performance.8 This situation is typical of states that enter a
recession early-some proximate cause
may be identifiable, but the losses are
widespread. While the pattern could continue to act as a damper on these states,
their specific weakness would be unlikely to harm other states, where federal
employment is less concentrated.
On the other hand, many states continue
to grow vigorously, albeit at rates lower
than at the beginning of 1995. Strong
showings in Ohio (238 percent of its
15-year growth rate), Illinois (260 percent), and Michigan (178 percent) point
toward continued strength in the Great
Lakes states traditionally associated with
manufacturing. 9 Employment gains are
also substantial in several Plains states
where jobs are highly concentrated in
agriculture, although many of these
states-most notably Iowa and Kansas
-have above-average manufacturing
intensities (18 percent and 16 percent of
workers, respectively).
The other strong region is the West.
While Utah, Montana, and Oregon are in
better shape than their neighbors, most
western states are outperforming the
economy, even relative to their 15-year
averages (which are also higher than
most). Several states (for example, Utah,
Nevada, and Colorado) have been big
gainers for the last several years, as
migrants from other states rapidly
expanded their populations. Although
the West continues to flourish, the
growth of most of its states has tapered
off. Several states in the oil-oriented
Southwest are also doing quite well.

•

Conclusion

Overall, U.S. employment growth has
slackened, reflecting a slower aggregate
economy. However, many states have
thus far avoided entering a "soft patch."

There is no definitive evidence here for a
recession; rather, our analysis shows that
jobs continue to grow in most states (although at a reduced rate). Only a few
states are experiencing declining employment growth that might suggest an
increasing likelihood of local recessions
-notably on the East Coast. These
states represent a substantial portion of
the economy, and their performance may
tend to color perceptions beyond their
boundaries.

•

Footnotes

1. Randall Eberts reviews recessions from
1950 to 1990 and finds that in most of them,
a few states were already experiencing employment losses when the peak was reached
nationally. See "Can State Employment Declines Foretell National Business Cycles?"
Federal Reserve Bank of Cleveland, Economic Commentary, September 15, 1990.
2. We use year-over-year employment
changes (calculated by subtracting the previous year 's non-seasonally-adjusted monthly
figure from this year's), not the more commonly reported seasonally-adjusted monthly
changes.

Federal Reserve Bank of Cleveland
Research Department
P.O. Box 6387
Cleveland, OH 44101
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3. Rebenchmarking corrects these figures by
using far more complete information from
states ' unemployment insurance records.

4. Because of technical differences in the
procedures used to calculate civilian nonfarm
employment levels, the state numbers do not
sum to the national figures.

5. Note that the 15-year average includes
substantial recessionary periods during
which most states lost employment.

9. Ohio and Michigan both have manufacturing employment concentrations well beyond national averages-23 and 24 percent,
respectively. Illinois is only slightly above
average in manufacturing employment.

-

M ark E. Schweitzer is an economist and

Kristin M. Roberts is a senior research
assistant at the Federal Reserve Bank of
Cleveland. The authors thank Randall

6. The cutoff was actually arrived at by
studying the frequency with which states fell
below their average growth rates. States fell
below half of their 15-year average growth
only 30 percent of the time. Average employment growth rates varied from West Virginia's 0.3 percent long-term rate to booming
Nevada's 4.7 percent.
7. Eberts (footnote 1) identified this pattern in
state employment losses from 1950 to 1990.

Eberts for insightful comments.
The views stated herein are those of the
authors and not necessarily those of the Federal Reserve Bank of Cleveland or of the
Board of Governors of the Federal Reserve
System.

Economic Commentary is now available
electronically through the Cleveland Fed's
home page on the World Wide Web:

8. Industry figures at the state level have not
yet been rebenchmarked. They are used primarily to calculate states' relative industry intensities, which do not change rapidly and are
unlikely to be affected by rebenchmarking.

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